Today Nokia announced a new partnership with Microsoft. The essence of the partnership is that Nokia and Microsoft will work closely together on Windows Phone, which Nokia now will use as its main operating system for mobile devices. Both are struggling in the mobile phone industry, and this partnership is a partnership between two dying dinosaurs in an attempt to create a nimble Nokia.
Nokia, the once stalwart of the mobile phone industry, has fallen on hard times in the past few years, as the Symbian operating system that Nokia mobile phones are based on has been made rather outdated by rivalling operating systems from Apple (IOS) and Google (Android), both which are relatively new to the mobile phone OS scene.
Nokia's fall is a story of management failure, of failure to execute product development & launches, and to the lack of commercialising technologies. Nokia has simply spent far too much time and resources on unsuccessfully catching up with Apple and Google, with few results to point to. The lack of success has little to do with software developers, and more to do with management execution and industry understanding. These two issues are not solved by partnering with Microsoft. Complacency, which has haunted Nokia for the past years, is a danger to industry leaders. Nokia's management team failed to realise the impact the internet would have on the mobile phone industry, and to formulate this insight into action plans and product execution. History shows how complacent industry leaders fail to identify and to action on industry change and Nokia will join the ranks of other companies that have fallen or made missteps due to complacency and failure to action industry change. This is not to say that no one at Nokia anticipated change; in 2007 Nokia started developing a Linux-based distribution, Maemo, which it later partnered with Intel to further develop under the name Meego. Maemo/Meego was developed as a potential replacement for Symbian OS. As I mentioned in 2007 using open source and Linux can make sense in the mobile space, however Nokia will need to encourage community participation, meaning developers, user experience designers, translators and other contributors, while still be able to execute. Going from a closed source and proprietary, which Symbian was in those days, to an open collaborative development entails significant organisational cultural change. Meego has so far remained a hobby project at Nokia (after over three years of development only one product, the Nokia N900, sports Meego), although Meego code has been adopted by the Linux community. Nokia's relationship with open source is an odd story. This is contrasted by Google's Android, which in two years has established itself as the defacto leading operating system for mobile devices in the vendor community.
Nokia has tried to position itself as an open source champion (for example by acquiring Trolltech, the developer of the QT toolkit which is used by Linux and cross platform developers, and afterwards pushing QT development for mobile solutions and open sourcing QT) while Nokia has failed to turn its open source push into revenue generating products and services. For example, when Nokia acquired Trolltech I thought immediately that QT would be positioned as one stop shop for application development. Use QT to develop an application and it could be ported to Windows Vista/7, Mac OS, Linux, Symbian and also, and importantly, Nokia's Ovi web services platform. The Trolltech acquisition is a long term play, however, Nokia has still to actually generate meaningful products and services that justify the acquisition.
Microsoft has also felt the brunt of the onslaught from Apple and Google in the mobile phone operating system market, and shares in many ways a similar story with Nokia. Windows Mobile 6 became dated with the emergence of IOS and Android. However, unlike Nokia, Microsoft pushed out Windows Phone 7 in late 2010, which in many ways closed the gap. Although Windows Phone is more on parity with IOS and Android from a feature perspective there has not been a surge in devices and adoption of Windows Phone. The legacy perception that Microsoft is somewhat dated in the consumer scene is one issue. More importantly is to build a large enough community of software developers and service providers for Windows Phone. So far the platform is miles behind industry leaders IOS and Android, which is unlikely to to change in the near future. It is odd that Microsoft, the software giant that has large developer programmes in place globally, has been outplayed in its own game by gadget maker Apple and search gorilla Google.
For Microsoft this deal is in some ways a much needed win. Windows Phone, although having been generally favourably reviewed, has not stopped Microsoft's decline in smartphone market share. The volume that Nokia can bring will therefore be much needed. This should help increase the attractiveness of Windows Phone for developers and service providers. However, it is questionable whether Nokia is the ideal partner for Microsoft. Sure, Nokia has significant experience in hardware design, however, Nokia's hardware era was in the “candy bar” phone market. Nokia has a poor track record with large touch screen phones compared to for example Apple, HTC, Motorola and Samsung. Hardware design experience from this segment is more valuable than experience from the candy bar segment when driving Windows Phone. Nokia, therefore, is more of a volume-based player without a credible high end proposition. Nokia's market position is therefore in a challenging situation; it lacks a high end play that can drive profits and it is likely to face much tougher competition from LG, Samsung, Huawei and ZTE in its core market -the lower cost, less feature rich phones. We also need to bear in mind that, unless Nokia started working on Windows Phone based phones months ago, it will probably take Nokia 6-12 months to bring products to market with the new operating system. During this time we can expect significant change and turn over of staff at Nokia, where Nokia's CEO Mr. Elop will need to show stateman's leadership to ensure execution of roadmaps.
For Nokia this deal is more puzzling. Yes, Symbian is dated. Yes, the sky is falling. Yes, Nokia is in pain due to the competition. Yes, Nokia needs clear leadership and execution. Yes, Nokia is miles behind in terms of eco-systems, developer communities and so on. But no, switching to a partnership with Microsoft will not solve these problems. Trying to merge two sinking ships is more likely to make the ships sink faster than to keep them afloat. Windows Phone has so far, although with only a short track record on the market, failed to stop Android and IOS from surging forth in the market, by capturing customers, application developers, telco channels and vendors. For every day the gap increases and it will be increasingly more difficult to close the gap. The switch to Windows Phone, though, should not come as a surprise. Mr. Elop is a former Microsoft executive that recently took on the top position at Nokia. It is safe to assume that during the screening process of Mr. Elop the Board of Nokia discussed this option in detail, and by hiring him they effectively gave the green light to divert from Symbian and Meego and to migrate to Windows Phone. However, Nokia had other alternatives than to partner with Microsoft.
The most obvious is to continue business as usual. However, this would not solve the execution problem, nor its software roadmap problem. Nokia could also partner with HP in order to drive WebOS, however, it is difficult to see how this would provide more value than the Microsoft partnership as WebOS lacks any significant market share and developer attention. The most viable option is to adopt Android, like most other vendors have. Critics of this path argue that Nokia would lack differentiation in a rather crowded Android market. One Nokia executive even stated that to adopt Android would be like “pissing in one's trousers to stay warm”. Points of differentiation exist, one only needs to apply some creativity. For example the main Android vendors use customer user interfaces, or skins. At the same time Google releases new Android version several times per year that are largely hardware compatible with previous versions. However, vendors, not Google push out upgrades to end users. Vendors are typically slow in rolling out software upgrades chiefly because:
1. The customer interface needs to be tested and validated for each new Android release and for each device. This is costly and time consuming.
2. Software upgrades are typically free-of-charge
3. Software upgrades may prolong the product life cycle, which may cut into future sales.
Therefore a business opportunity exists for vanilla (non-customised) Android phones which Nokia could have exploited. While some vendors use 3-6-9 months or more to upgrade Android on handsets in the market, Nokia could for example have a social contract with its customers that it will push out upgrades where possible within one month of an Android update. Nokia could also act as an integrator of application stores for Android, whether the applications come from WAC, Nokia's Ovi store or from Android Market. At the same time Nokia could shift Symbian developers over to Meego while the management team at Nokia would ensure software execution. Once again, Nokia's problem has not been its developer capabilities. Lack of vision and understanding of the changing nature of the mobile industry combined with lack of execution has left Nokia in a proverbial free fall.
Sound management philosophy is that prior a partnership, joint venture, or merger both organisations need to be stream lined and fully functioning. These constructions do not solve internal issues. They can in fact make internal issues more problematic as the corporate structure becomes more complex.
All in all this is a dark day for Nokia. It is unclear what will happen to the 130,000 Nokia work force. Not only can we expect large scale job cuts (for example in software development), but it is safe to assume that many Nokiaers will polish their CV. For example, Nokia has strived to become a more open source centric company over the past few years, while Microsoft, its new partner, is fighting on all fronts against open source software. It is difficult to tell the future of Meego and QT under Nokia's leadership, however, it is safe to assume that the open source proponents at Nokia would have preferred a different CEO and most definitely a different partner. For them this must be like going to bed with the devil.
Mr. Elop has put a firm stake in the ground, pointing out the direction he feels Nokia needs to make. The next 12 months will be challenging, with organisational change, cultural upheaval and product execution. Nokia has substantial catch up to do with the main competitors, and strong leadership will be crucial to ensure that next 12 months are spent wisely. However, I remain pessimistic of Nokia's future, even after this partnership announcement. It does not solve the internal issues at Nokia, and betting the future on an mobile platform that is a distant runners-up is a brave move. Fortunately for Nokia, Microsoft has a track record of sinking billions of dollars into loss making projects that Microsoft considers to be key to its future. Nokia therefore has a partner that is in it for the long haul.
